If you come from the construction sector, where state-mandated payment bonds are common in international practice, it is important to know from the outset: Georgian legislation does not provide a compulsory state payment-guarantee scheme. Payment security here rests directly on the parties' agreement: the bank guarantee and the payment clauses of the contract. These instruments are fully adequate, but their use requires correct structuring.
Under a bank guarantee, a bank, other credit institution or insurance organization — the guarantor — at the request of another person, the principal, undertakes a written obligation to pay the principal's creditor — the beneficiary — a monetary amount in accordance with the obligation assumed, on the basis of the beneficiary's written demand. A bank guarantee secures the proper performance by the principal of its obligation toward the beneficiary, and for its issuance the principal pays the guarantor the agreed remuneration.
The Independence of the Guarantor's Obligation
The most significant property of the bank guarantee is its independence: the guarantor's obligation contemplated by the bank guarantee, in the relationship between it and the beneficiary, does not depend on the underlying obligation for the performance of which it was issued, even where the guarantee contains a reference to that obligation. In practical terms this means: where a subcontractor has been issued a guarantee and the demand conforms to the conditions of the guarantee, the beneficiary may claim payment regardless of what is happening in the construction contract.
The Guarantor's Refusal to Satisfy a Demand
The guarantor has narrow grounds for refusal: the guarantor must refuse the beneficiary satisfaction of its demand where that demand or the attached documents do not correspond to the conditions of the guarantee, or where they were presented to the guarantor after the expiry of the period defined in the guarantee. The guarantor must immediately notify the beneficiary of the refusal. In every other case the demand is subject to satisfaction, which is why the precise drafting of the guarantee text and the correctness of the demand documents are decisive.
Underlying Claims: Remuneration for Performed Work
Together with the guarantee, the contractor's possibilities are defined by contractual claims as well. The basic rule is this: the customer must pay the contractor the remuneration after the performance of the work, unless the contract provides for payment in parts. In other words, where a payment schedule has been stipulated, precisely that schedule is binding; if not — payment follows completion.
A balanced rule exists for termination as well: where the contractor terminates the obligation in the manner established by law, it may claim the part of the remuneration corresponding to its earlier services, where the customer has some interest in the services already rendered. This norm protects the situation where the relationship ends before term but a partial result is still of use to the customer.
How a Lawyer Builds the Demand on the Guarantee
The case begins with an analysis of the guarantee text: what form of demand is contemplated, which documents must be attached, and what period is defined. Then the beneficiary's written demand is prepared in compliance with all conditions; in case of refusal, the grounds of the refusal and the further legal routes are assessed. In parallel, the underlying contractual claim is built — on the basis of the payment schedule or the performed work. The attorneys of Legal.ge will assist you both in structuring the guarantee and in presenting the demand and conducting the dispute.
Frequently Asked Questions
Below are frequent questions about payment guarantees.
What is a bank guarantee?
The guarant’s — a bank, other credit institution or insurance organisation — written obligation to pay the principal’s creditor (beneficiary) a monetary sum on the basis of the beneficiary’s written demand.
Does the guarant depend on the underlying obligation?
No — the guarant’s obligation to the beneficiary is independent of the underlying obligation whose performance it secures, even where the guarantee refers to it.
When must the guarant refuse the beneficiary?
Where the demand or accompanying documents do not correspond to the terms of the guarantee, or are submitted after expiry of the period defined in the guarantee; the beneficiary must be notified immediately.
Who pays the guarant remuneration?
The principal — the agreed remuneration for issuing the guarantee.
How We Help on Legal.ge
Work on the guarantee begins with studying the form of the demand: which documents the guarantor requires, which certificates must accompany the demand, and within what period presentation is possible. At this stage the beneficiary objectively assesses how far its payment picture corresponds to the conditions of the guarantee and where a formal defect may appear. The guarantor's grounds for refusal hide precisely in these details — and that is why the preparation of the demand is entrusted to an experienced lawyer.
The second stage is the management of time: a guarantee is an instrument with an expiry, and failing to present the demand within the period defined in its conditions means losing it. The third stage is the coordination of parallel claims: payment under the guarantee and compensation from the underlying contract are managed together, so that one does not obstruct the other. Such coordination enables the injured party to obtain full compensation from both sources. Both the beneficiary’s demand and the guarant’s response must be set out in writing, in keeping with all the conditions of the guarantee.